A Must-Know Guide to Selling Fractional Shares: Master Trading Timing, Fee Calculation, and Entry Techniques

Why Should You Understand Fractional Share Trading? Essential Knowledge for Small Investors

In recent years, fractional share trading has become one of the most popular investment tools among small investors in Taiwan. Many hold scattered stocks of fewer than 1000 shares (1 lot), which are classified as fractional shares, with a minimum trading unit of 1 share. These fractional shares often result from unfilled orders or during dividend and stock distribution events.

The starting point for full lot trading is 1000 shares, but fractional shares break this barrier. Understanding the rules, timing, and techniques for selling fractional shares is crucial for investors aiming to manage their portfolios effectively.

Three Key Time Periods for Selling Fractional Shares

During Market Hours (09:00-13:30)

This is the most active period for selling fractional shares. Investors can submit sell orders through their broker’s trading platform starting at 9:00 AM, but only via electronic orders. The system performs the first matching at 9:10, then matches every minute through a call auction process.

Order priority is based on price, with higher prices first; at the same price, earlier submitted orders are prioritized. If you want to sell fractional shares during market hours but don’t get a fill, the unfilled portion will not carry over to after-hours trading and must be re-entered.

After-Hours Trading (13:40-14:30)

Starting at 13:40, investors can place manual orders via electronic trading or by calling broker customer service. Importantly, only one call auction occurs at 14:30.

Order matching during this period also prioritizes price, but orders at the same price are randomly ordered by the system, differing from the time-based sorting during market hours. Unfilled orders are automatically canceled and will not carry over to the next trading day.

Next Day’s Market Re-Entry

If orders remain unfilled after two periods, investors can submit new fractional share sell orders during the next day’s market hours. This provides multiple opportunities to find a suitable transaction price.

How Are Transaction Fees for Selling Fractional Shares Calculated?

The transaction fee for buying or selling fractional shares is the same as for full lots, calculated at 0.1425% of the transaction amount. However, different brokers set minimum fee thresholds (usually 1 TWD) and offer discounts for electronic orders.

Fee Calculation Example

Suppose you sell 200 shares of TSMC (2330.TW, assuming a closing price of 1065 TWD):

200 shares × 1065 TWD × 0.1425% = 303.53 TWD

If the broker offers a 50% discount for electronic orders, the actual fee would be:

303.53 TWD × 50% = 151.77 TWD

Comparison of Major Brokers’ Fees

To prevent fees from eroding profits excessively, it’s generally recommended that each transaction be above 10,000 TWD, making selling fractional shares more cost-effective.

Low Success Rate in Selling Fractional Shares? Practical Trading Tips

Tip 1: Leverage the Trading Characteristics of Less Popular Stocks

Some less mainstream stocks, like Shin Jin (1582.TW), have lower fractional share trading volume. If you hold 700 shares of Shin Jin and want to sell fractional shares, you might find limited trading activity during market hours, making it hard to execute. In this case, you have two options:

1. Re-enter the order during after-hours, waiting for larger buy-side interest
2. Continue placing orders during the next day’s market hours to extend your trading window

Tip 2: Convert Fractions into Whole Shares

If your fractional shares are difficult to sell, consider converting fractions into whole shares. For example, if you hold 700 shares of Shin Jin, you could buy an additional 300 shares to reach 1000 shares (1 lot), then sell the full lot in a more active market.

This method benefits from higher liquidity and faster execution, with more efficient fees. The only downside is the need for short-term additional capital to buy the extra 300 shares.

Tip 3: Extreme Price Strategy During After-Hours

Since after-hours trading involves only one call auction, the exchange follows the “maximum transaction principle.” If you urgently want to sell fractional shares, you can set a sell order at the limit down price, increasing the chance of execution under the maximum transaction rule.

Conversely, for buying fractional shares, setting a buy order at the limit up price can similarly improve the likelihood of a fill.

Dividends and Distributions for Fractional Shares

Holders of fractional shares enjoy full shareholder rights. During dividend payouts, fractional shares are combined with full lots to distribute dividends proportionally. For fractional parts less than one share, they are either paid out as cash or pooled for auction, with proceeds distributed among fractional shareholders.

This means that even holding fractional shares allows participation in the company’s profit sharing.

Advantages and Risks of Selling Fractional Shares

Advantages

• Low capital threshold, suitable for regular savings plans
• No need for large upfront investment to access the stock market
• Allows trial investments to understand market operation
• Offers more flexible capital allocation

Risks and Limitations

1. Limited Liquidity: Trading volume for fractional shares is much lower than full lots; selling fractional shares may require waiting longer for execution.

2. Higher Transaction Costs: Due to minimum fee thresholds, small trades have a higher fee rate, which can eat into small gains or losses.

3. Trading Restrictions: You can only actively sell fractional shares; buying requires waiting for sellers. Also, converting fractional to full shares has a time limit, after which it expires.

4. Uncertain Execution: Brokerage’s fractional share inventory may be insufficient, so investors cannot guarantee to buy or sell fractional shares of the desired amount.

Are There Alternatives Besides Fractional Shares?

If investors are concerned about liquidity and fee issues with fractional shares, they can consider Contracts for Difference (CFD) as an alternative.

CFDs require only a small margin, e.g., investing in 5 shares of Google at $400 each, would cost $2000 for full shares, but with a 5% margin requirement, only $100 is needed to open a position.

Most CFD brokers do not charge commissions, only spreads, with transparent costs and no liquidity issues. However, CFDs are settled daily, suitable for short-term trading; holding positions overnight incurs overnight financing costs.

Compared to fractional shares, CFDs are more suitable for short-term traders, while fractional shares are better for long-term investors.

Conclusion

As Taiwan’s stock exchange continues to optimize fractional share trading mechanisms, selling fractional shares has become an effective way to achieve small-scale investments. Mastering trading times, understanding fee structures, and applying trading techniques can significantly improve trading efficiency.

Investors should choose their trading approach based on their risk tolerance and time horizon. Whether sticking with fractional shares or exploring CFDs, understanding each method’s characteristics and avoiding blind following are key to achieving steady investment returns in the market.